Oil falls over 2% as traders weigh Saudi attack risk and demand concerns

U.S. crude oil fell more than 2% on Monday as traders balanced the risk of fresh attacks on Saudi Arabian energy infrastructure against fears that high prices could erode demand. U.S. West Texas Intermediate futures slid 2.19% to $101 a barrel, while Brent crude futures declined 1.89% to $114.51 a barrel.

The pullback followed a sharp rally on Friday after attacks by Yemen’s Houthi militants on Saudi Arabia renewed concerns about disruptions to global energy supplies.

Houthi strikes keep tensions high

Tensions stayed elevated over the weekend. The Houthis said they targeted Saudi Arabia’s main airport in Riyadh and oil facilities on Saturday. Saudi authorities said on Sunday they intercepted additional missiles and drones. The kingdom partially resumed operations at its main airport on Sunday despite damage from earlier attacks, even as the Houthis threatened further strikes.

The hostilities have sharpened focus on the vulnerability of Saudi energy infrastructure. Traders are watching for risks to production, refining and export facilities.

Geopolitical premium and demand risk

Michael Alfaro, chief investment officer at Gallo Partners, said geopolitical uncertainty had already added roughly $20 a barrel to oil prices. A substantial strike on Saudi Arabia’s East-West pipeline or additional refining infrastructure could send prices sharply higher, he added.

But further gains could hurt consumption. “What we would likely see if oil pushed above 120, 130, 140 dollars a barrel for Brent, that is, you’re going to see more demand destruction,” Alfaro said.

He warned that damage to refining infrastructure could be a more persistent problem. “The real challenge is refining capacity,” he said, adding that disruptions could become a longer-term structural issue extending into 2027 and beyond.

Supply responses in focus

Saudi Arabia plans to begin storing crude oil in Singapore from the second half of 2027, according to energy ministers from both countries. The move is aimed at strengthening the resilience of its Asian supply chain.

In the U.S., the Energy Department on Friday authorised the release of up to 400,000 barrels from the Strategic Petroleum Reserve to address a supply disruption at a Louisiana refinery. The prospect of more supply from American producers remains uncertain. Companies are reluctant to commit to major new investments amid volatile prices and geopolitical risks.

Alfaro said U.S. producers were adding some drilling rigs but stayed cautious on capital spending. “We’re not really seeing major capex additions to bring new rigs on or bring new production online,” he said.

For Nigeria, oil price swings affect federation revenue, foreign exchange inflows and the cost of refined fuel imports. A sustained fall in crude prices can tighten dollar supply, while a spike raises import costs for petrol and other refined products.